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Ahold USA Q2 Results 'Progressing Well'

Implementation of enhanced customer program paying off

August 21, 2014, 12:30 pm

Its overall sales may have slipped 1.1 percent due to the timing of the Easter holiday, but international retail conglomerate Ahold can at least point to the on-track implementation of a customer experience initiative at the company's American stores in its interim report for the second quarter and first half of 2014.

"In the United States, the rollout of our program to improve our customer proposition is progressing well, bringing better quality, service and value to our customers," noted Dick Boer, CEO of Amsterdam-based Ahold. "By the end of this quarter, the program was active in 320 stores and will be rolled out to more than half of our stores by the end of this year. The accelerated rollout of the program, together with our decision to absorb commodity price increases, resulted in an investment in margin that was partly offset by cost savings from our Simplicity [reorganization] program."

To enhance the customer experience at its U.S. stores, Ahold improved its fresh offering across its four American divisions -– Giant-Carlisle, Giant-Landover, Stop & Shop Metro New York, and Stop & Shop New England –- provided more engaged store associates and introduced targeted price reductions. Thanks to the accelerated implementation schedule, the program rolled out to 130 stores during the second quarter. "We still expect to have the program implemented in over 50 percent of our stores by the end of 2014, largely funded by Simplicity cost savings in the U.S.," Ahold asserted.

U.S. Net, ID Sales Down

Second-quarter net sales at Ahold USA were 1.7 percent lower than last year, while identical sales, excluding gas, were down 1.8 percent, factoring in the negative impact of the post-Easter week falling within the company’s Q2. Ahold USA’s overall market share was slightly down, especially in New England and at Giant-Landover’s stores, which are located in the Mid-Atlantic region.

Meanwhile, Ahold USA's e-grocery operation, Peapod, again achieved double-digit sales growth. "The recent opening of our warehouse in New Jersey will almost double Peapod's capacity and will consolidate its position as the leading online grocer in the United States,” Ahold said.

Ahold USA's underlying operating margin of 3.7 percent was 0.5 percent lower than last year, which Ahold explained "as the consequence of the accelerated rollout of the [customer experience] program, together with commodity price increases in meat and dairy that we chose to partly absorb, to the benefit of our customers."

Overall, Ahold reported an 18.6 percent increase in Q2 online sales, to 273 million euros [US $362.4 million], and an underlying operating margin for the quarter of 3.9 percent, reflecting pressure on volumes and price investments. The company also began streamlining its head office support roles in Europe under the Simplicity program and completed its acquisition of SPAR stores in the Czech Republic during the quarter.

For the half-year, underlying operating income was down 10.4 percent and 8 percent from the year-ago period, while underlying operating margin was 3.9 percent versus 4.3 percent last year. Operating income was down 5.5 percent and 3.3 percent from the year-ago period, including restructuring and related charges, and net debt grew during the year to 1.1 billion euros (US $1.5 billion).

"In a challenging competitive environment, we remain focused on executing our Reshaping Retail strategy and continue to make investments in our customer and value offering, making our stores a better place to shop," noted Boer. "We expect that ongoing investments in our customer proposition and further development of our product range across multiple categories will result in improving sales trends."